Increased Investments, Deeper Social Assistance to Get Consumers Spending Again

The government hopes improvement in the investment climate, increased social assistance and peaceful general elections will help bolster confidence and encourage consumers to start spending again after holding back consumption in recent years, Finance Minister Sri Mulyani Indrawati said on Tuesday (06/02).(Antara Photo/Sigid Kurniawan)

Jakarta. The government hopes improvement in the investment climate, increased social assistance and peaceful general elections will help bolster confidence and encourage consumers to start spending again after holding back consumption in recent years, Finance Minister Sri Mulyani Indrawati said on Tuesday (06/02).

Investment was the second biggest contributor to Indonesia’s economic growth in 2017. Construction of new office buildings, manufacturing plants, roads and airports and record-breaking capital injections into various technology startups grabbed national news headlines last year.

"We hope investments can remain steady or increase above 7 percent, as that will drive up confidence in the middle class, especially for those who will see an increase their purchasing power again," Sri Mulyani told reporters.

Sri Mulyani said President Joko "Jokowi" Widodo’s administration is currently focusing on improving the investment climate in the country through a series of economic deregulation packages to cut red tape and streamline a notoriously slow bureaucracy.

But household consumption, which accounts for about a half of the country's economy, only expanded by 4.95 percent, slowing from 5.01 percent in 2016. That percentage represents the slowest consumption expansion in the last decade for Southeast Asia's largest economy.

Sri Mulyani said inflation must also be kept at controlled levels to increase people’s purchasing power, as well as a timely disbursement of social assistance.

"There are government programs to improve people’s purchasing power, such as the cash transfer program, which has to be distributed on time," Sri Mulyani said.

The conditional cash transfer program, known as the Family Hope Program, targets to include the 10 million poorest families by the end of the year, from 6 million last year.

The government has set an inflation target of 3.5 percent for this year, as outlined in the 2018 state budget, while Bank Indonesia's target is between 2.5 percent and 4.5 percent.

Indonesia will also conduct simultaneous general elections in 171 provinces, districts and cities in June, including in the country's three largest provinces. The next presidential election is scheduled for April 2019.

"Historically, in the run-up to elections, fiscal policy tends to get easier when the incumbents are running again, and this also coincides with a sequential improvement in private consumption," Deyi Tan and Zhixiang Su, Singapore-based economists at Morgan Stanley, wrote in a research note to clients on Monday.

"We expect to see similar patterns in the run-up to this election cycle, as policymakers focus on social assistance spending and infrastructure, which would in turn help to generate higher multiplier effects and crowd in private sector domestic demand," the economists said.